The Ins and Outs of Foreclosures and REO Properties

May 13, 2010 Updated: May 13, 2010

[xtypo_dropcap]T[/xtypo_dropcap]he term foreclosure has become all too common in everyday vernacular. Buyers hunt for foreclosed properties, while sellers attempt to steer clear of them.

We all have seen one that is for sale in our own community. These are known as REO (Real Estate Owned) properties, which are bank owned, and are being sold on the market—usually at a discount price—after failing to sell at a foreclosure auction.

While it should not be a goal to benefit from another’s loss, for buyers, an REO does imply opportunity. A buyer can get a deal, but what is the price, and what does it take?


While a buyer may be financially prepared and mentally ready to purchase, most foreclosures and REOs are in need of care.

It is not uncommon to sense that such a property has suffered. Walls may be scratched, fixtures missing, and appliances and mechanical units may be neglected and layered with dust.

The previous owner has likely left unhappily, and the property sat vacant ever since. A buyer must possess the ability to see this property with a bright future, and then do what it takes to manifest such a vision.

Professional Guidance

REO properties are the safest form of foreclosed property to consider purchasing. Having a trustworthy guide or agent to point out the important aspects of purchasing an REO property will increase the odds of a smooth transaction and relax the buyer’s mind.

But realize that purchasing a property at a foreclosure auction is a whole different animal and one must be aware of the many risks involved. In this case, consider consulting a real estate attorney before making a move.


Research the subject property’s history and understand the market value of comparable homes that have recently sold. If it is discovered that the REO property in question is a wonderful deal, it is likely others will also realize this fact.

Often, when an REO is priced below market value, it will attract multiple offers. If a multiple offer situation arises, be prepared to offer asking price or higher. In other words, competition may become a factor. However, it is true that a buyer can get a good deal.
Other benefits are involved in purchasing an REO property.

Less Personal

In some ways negotiations may seem easier than those with a traditional seller. There is less emotion involved. This should remove much of the pressure on a buyer when presenting an offer, as the seller only has a financial interest in the home, not an emotional one. It is hard to personally insult a bank.

Quick Pace
REO properties are vacant and banks are ready to relinquish them to a ready and willing buyer as soon as possible. Because of this, as compared to a short sale (a pre-foreclosure), an REO property will generally translate into a smoother, quicker transaction.

And this is what everyone wants, but rarely gets—a good deal with little waiting. If this can be accomplished, consider it a result of the buyer’s good fortune.